The A2 Milk Company Ltd (ASX: A2M) share price has performed admirably in the last year, rising by around 25% and almost reaching $7.
It's a bit of a redemption story for A2 Milk considering the company was trading at around $20 during mid-2020.
The infant formula business is recovering from COVID-19 impacts when there was a huge disruption to daigou buyers.
With the business now reporting positive signs of a turnaround, can things get even better?
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Earnings turnaround
A2 Milk reported in the FY23 half-year result that total revenue rose by 18.6% to $783.3 million. There was a very mixed performance within that overall number, though.
While China and other Asian sales increased 54% and sales in the United States went up 61.8%, it was a different story in Australia and New Zealand where sales decreased by 24.6%.
Pleasingly, the company said it reached historical highs in China brand awareness, trial and loyalty metrics. It also achieved record market shares in Chinese label infant formula in 'mother and baby stores' and domestic online channels.
The English label infant formula share improved in cross-border e-commerce and daigou channels.
A2 Milk's earnings before interest, tax, depreciation and amortisation (EBITDA) increased 10.5% to $107.8 million and the net profit after tax (NPAT) increased by 22.1% to $68.5 million. Earnings per share (EPS) jumped 24.1% to 10 cents.
The company said that its share buyback of up to $150 million, which started in the FY23 first half, was 60.1% complete.
Things were good in the first half, but the share market can be very focused on the future, which would then influence the A2 Milk share price.
FY23 growth expected
A2 Milk is expecting FY23 revenue to show growth of low double digits, with an EBITDA margin similar to FY22.
However, there is a negative for the business in terms of the industry dynamics.
The Chinese infant formula market dynamics are "increasingly challenging" due to fewer births in the 2022 calendar year and the rolling impacts from fewer births in prior years on later-stage infant formula products.
A2 Milk also expects that the English label market will "continue to be impacted by the evolving channel dynamics and a further shift towards the China label market."
My thoughts on the A2 Milk share price
I think A2 Milk has done a really good job of turning things around.
Commsec numbers suggest that A2 Milk is going to generate EPS of 18.9 cents, with further profit growth in FY24 and FY25.
At the current A2 Milk share price, that suggests that it's valued at 35x FY23's estimated earnings.
While that isn't as expensive as a number of ASX growth shares, I think the market now reflects the much-improved outlook, so I'd be less excited to buy today than a year ago. But I still think that it could outperform from here because of the necessary nature of infant formula and international growth.
